TMI Blog2001 (6) TMI 690X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Facts of the case as narrated in the order-in-original, are reproduced below : 2. M/s. Elgi Equipments Ltd., (hereinafter referred to as M/s. Elgi) having registered office at India House, Trichy Road, Coimbatore, have four factories at (i) Trichy Road, (ii) Elgi Industrial Complex, Singanallur, (iii) Sowripalayam, Coimbatore and (iv) Industrial Estate, Kurichy. They manufacture compressors, pumps, Service Station Equipments etc. 3. M/s. Elgi Limited gave trade discounts varying from 10% to 45% on different products and declared that such discounts may be allowed uniformly to all the buyers. 4. During the course of assessment of RT 12 returns, the officers noticed some corrections which were made on the duplicate entries of gate passes, so that the prices tallied with the price shown in the price list the original gate passes bearing Sl. No. 434/16-06-1990 and 478/25-06-1990. Verification of these gate passes proved that duplicate and triplicate copies have been corrected by M/s. Elgi after issue of original. Sri. T. Frank, Director, in his statement claimed that when the sale at the factory gate was in retail, duty was paid at the wholesale price and the retail price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank, Director, Elgi gave a further statement on 25-04-1991. Sri. Frank explained that Elgi had appointed main dealers in respect of borewell compressors and distributors in the name of other products and also had branches all over India; that they had effected (i) sales of main dealers/distributors (ii) Transfer to branches (iii) Sales through main dealers/distributors (iv) Sales through branches; that in respect of (i) and (ii), discount had been passed on in full. In respect of (iii) and (iv), if the buyer was allowed any discount, the balance discount was passed on to the branch/main dealer/distributors. He also admitted that if a buyer approached the company directly, a portion of the discount which was not passed on to the buyer was passed on to the jurisdictional branch/distributor/main dealer or retained by the company, since such buyers were not wholesale buyers. He admitted that the distributor/main dealer/branch got a part of discount as Area Sales Commission. He also justified higher discounts to distributor/main dealers than to dealers/distributors on the ground that distributor/main dealer had to provide after sale and warranty service; that the distributor/main dealer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cide whether extended period can be invoked under Section 11A in this case, the Asstt. Commissioner of Central Excise, Coimbatore I Division has issued show cause notices for the period from 1-1-1991 to 31-3-1994. The details are as under : (i) C.No. V/84/17/37/91-92 Dated 26-08-1991 (ii) - do - 4-2-1992 (iii) - do - 4-8-1992 (iv) - do - 4-2-1993 (v) - do - 30-6-1993 (vi) - do - 3-1-1994 (vii) - do - 3-6-1994 11. By a letter of even no. dated 3-6-1994, Elgi was informed that these show cause notices would also be taken up for adjudication and personal hearing was fixed for 14-6-1994. The show cause notice issued by Asstt. Commissioner, Coimbatore I Division, in OC No. 1088/95 dated 25-7-1995 was transferred to Hqrs. Office, which had also been taken-up while adjudicating this case. 12. M/s. Elgi had not replied to the show cause dated 31-3-1993 but had approached Madras High Court and filed a writ petition seeking stay against show cause notice. When they failed to get a stay, they sought time to reply to show cause notice. They ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers only dealt in retail and no bulk offtake can be expected of them; that while partial discount was passed to the dealer, full discount was passed on to the distributor; that the portion of discount not passed on to the dealer was passed on to the jurisdictional distributor/dealer; that the dealers could only be equated with consumer and could not be treated at par with the distributors. M/s. Elgi have also contended that the additional considerations viz. the advertisement cost incurred by the distributor/dealer should only be added to the price of their product. 14. In their letter dated 9-8-1994, M/s. Elgi have contended that the show cause notice issued by this office was time barred as parallel proceedings were initiated by the Asstt. Commissioner of Central Excise, Coimbatore I Dvn. and they relied upon the decision in the case of Nayveli Lignite Corporation v. Collector of Central Excise [1992 (58) E.L.T. 76]; that in view of the observations of the Supreme Court in Bombay Tyre International case, they were eligible for the deduction of discount; that the ratio of the decision of the Tribunal in the case of Electrical Products Corporation v. Collector of Central Excise [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the ground that a portion of discount is passed on later provided it was known at the time of removal. (x) The expenses incurred on after sales service were not includible as they were incurred long after the sale. (xi) In MRF case, the Supreme Court has held that only those expenses which contribute to the value up to the date or the date of delivery are to be includable in the assessable value. Expenditure on distribution is not to be included. (xii) Distributors are not related persons. 18. After the personal hearing was over, Elgi furnished additional information and arguments. They are briefly enumerated below : (i) In respect of borewell compressors, 12.5% discount has been allowed to all categories viz. dealers/sub-dealers/distributors/ main dealers etc. Therefore, in regard to borewell compressors, there can not be any differential duty. (ii) They also furnished detailed gate pass wise clearances details in respect of all the products. Elgi also further confirmed that they have a standard discount structure and this discount was allowed in the invoice itself and has been passed on. (iii) The statement of Sri. T. Frank had been made without proper verifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as sales from the depots are concerned, the settled position as per Central Excise law is that where Part I price is available, the same would form the basis for charging duty on goods transported to the depots and hence the price charged by the depots are not relevant for the purpose of determination of assessable value. In this connection, he stated that the Department s contention is that in respect of some sales made from the depot, the discounts given are less than that declared in the price list and hence differential duty has been demanded. In this connection, he clarified that even though the permissible discount to distributors which has been approved in Part I of the price list is 20% they had paid duty in all such cases where lesser discounts have been given after claiming abatement of actual discount passed on in such cases. He stated that this is the position for almost the entire period covered by the show cause notice except for a brief period during the financial year 1991-92. He stated that the details in respect of this short period would be furnished and the differential duty worked out and paid. 25. Shri Sridharan also submitted that M/s. Elgi have furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot passed on to a dealer until target commitment was achieved was not correct and was contrary to the record, particularly in respect of sales of borewell compressors made from the factory gate; that there had been a mix-up of two distinct aspects viz. discount and commission in the statement of Shri T. Frank and that the statement of Shri T. Frank was not relevant to the present case. 3. The Commissioner after carefully going through their records and reply to the show cause notice and the submissions made at the time of personal hearing on 9-8-1994 and 30-3-1995 and the written submissions made on 30-11-1994, 8-12-1994 and 4-9-1995 in his findings observed that the main allegations made by the department in the show cause notice is that the full trade discount claimed in the price lists has not been actually passed on to the buyer but only a portion has been paid as over-riding commission to the distributors, main dealers/branches. Another allegation made by the department is that the appellants have reimbursed advertisement charges to the dealers and this is also includible in the assessable value. The show cause notice also proposed invoking the proviso to Section 11A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passed on fully. The discount so passed on was a normal trade discount. (b) Since there was normal price available at the factory gate, even if full discount was not passed on to the sub-dealers and others who bought at the factory gate, the normal price would be applicable. (c) In any case, the sale to the dealers/sub-dealers at the factory gate were either through branches or distributors (This fact has emerged from the statement of Shri T. Frank, Director dated 13-7-1990) and para 10 of Order-in-Original of Asstt. Commissioner, Coimbatore I Dvn vide C.No.V/30A/17/192/92 VC dated 24-6-1983. This was repeated in subsequent orders also. 32. The investigation made by the department with the dealers in Trichy and Mangalore and the statements recorded show that the difference between the discount passed on to the sub-dealers and the discount claimed on the price lists is paid to the distributor/branch, if the dealer happens to be located within the area allotted to the distributors/branches. Shri T. Frank, Director of the company has also admitted in his statement that the differential discount is passed on to the branches/main dealers/distributors as Area Sales commission and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore this amount is clearly covered by the Supreme Court decision as an inadmissible deduction. 36. From the statement of the dealer in Trichy, it is also clear that the sales through branch or distributors is only a myth and what is mentioned in the invoice is only to mislead the department. The dealers have clearly admitted that they have nothing to do with the branch or distributors. Another fact that is very relevant is that the branches make profits which clearly proves that there is a flow back of the discount. In view of this fact, the details furnished by the company in support of their centention that discount shown in the invoice has been passed on, does not help the assessee s base. It is not the department s contention that discount shown in the invoice has not at all been passed on. The department s contention is that discount shown in the gate pass has not been passed on. This fact has not been contested by the company at any point of time. 37. Another pertinent point to be mentioned is that from 1-4-1992, the assessee has stopped claiming of differential discount passed on to the main dealers/distributors/branches separately. It is interesting to note that w. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the computer system which was set right subsequently. However, the mistake in the computer system was not intimated to the department as they felt it not necessary to inform the department about the lapse in the computer. The assessee has stated that higher discount was given to the branches and distributors to take care of the expenses incurred on account of the inventory, after sales service and other sales expenses. The detection of mismanagement of computer and modifications made in duplicate copy of gate pass without the knowledge of the department led to the investigation by the department. Manipulations of the invoices showing that the sales are through branches when in fact it was not so, amount to not only to suppression of facts and mis-declaration by the assessee but also serves as an unimpeachable proof of the intent to evade Central Excise duty at the cost of exchequer. But for this detection, department could never have known about the inadmissibility of the discount. I also find that the assessee has filed a writ petition at Madras High Court against the above show cause notice in which suppression has been alleged but could not get a stay from High Court agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % 10% 12.5% 10% 5% 5. Sub-dealer 10% 7.5%) 5%) 10% 10% 12.5% 5% 44. Elgi have not categorically denied that differential discount has not been passed on to main dealer/distributor/branch. They have also not denied the reasons for giving higher discounts. Shri T. Frank, Director of Elgi in his statement dated 13-7-1990 has stated that the difference between the assessable value and retail price collected was passed on to their distributor or branches according to area under their jurisdiction once in 6 months. In his further statement dated 25-4-1991, Shri T. Frank has stated that the discount was passed on to the branches/main dealers/distributors in the name of area sales commission by way of credit notes issued from time to time; that the reason for passing on this discount was to cover the cost of inventory. Cost of after sales service during warranty period and other sales expenses of the branches/main dealer/distributor; that the discounts and the area sales commissions were utilised by the branches for covering their distribution expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y after the personal hearing was over. 47. In this connection, I consider it relevant to refer to the findings of following cases of Tribunal. K. Thangaswamy v. Collector of Customs, Madurai [1985 (21) E.L.T. 525 (T)] It is settled proposition of law that when a statement which is inculpatory in nature and confessional in character is retracted by a person, the Court will look into the factors and reasons to find out whether the reasons for retraction are true and voluntary. In the instant case, there was no immediate retraction. It is only in reply to show cause notice after a period of 10 months, the Appellant chose to retract from his earlier statement. The statement in the above circumstances has to be taken as true and voluntary. CCE, Madurai v. N. Parasmal and Others [1986 (26) E.L.T. 596] An incriminatory statement containing factual details by no stretch of reasoning can be characterised as figment of authorities imagination. Apart from this, if the statement is corroborated by other witnesses and evidence is retracted after great delay without giving satisfactory explanation, it will be treated as true and voluntary and is entitled to weight in evidence. M. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two Delhi distributors have taken place not at the factory gate but only from the Delhi branch which is only a stocking point to facilitate the supply of goods to the distributors in terms of the statement given by Shri T. Frank. In view of the non-disclosure of the additional consideration flowing from these distributors by way of after sales service rendered by them in respect of the goods supplied by the company, invoking the extended period is justified in this case. The company has also produced a number of service bills of other dealers to establish the fact that other dealers also render after-sales service in respect of the goods supplied by them. It is a fact that any dealer, whether big or small will be undertaking some after sales service and the bills produced by the company for the period subsequent to the case could be treated only as after sale bills of this category. Out of the 12 service bills produced, 4 are pertaining to M/s. Hydro Teen Engineers, Indore, a dealer coming under the Jurisdiction of Indore branch of the company. All other bills are for replacing some minor components and servicing etc. These services could only be termed as a normal servicing done ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 51. M/s. Elgi have written in their letter dated 16-4-1992 that they would claim uniform discount of 10% henceforth and pay duty on extra discount passed on to the distributors under protest. When the assessee himself has chosen to adopt a uniform discount of 10% in respect of all clearances, I have no hesitation to allow this 10% discount for the past clearances also. Therefore, I hold that the assessees are eligible for a uniform discount of 10% on their clearances to dealers/distributors/branches and differential duty is demandable on the ineligible portion of the discount passed on to their branches/distributors. In view of the above, I hold that M/s. Elgi is eligible for deduction of a discount of 10% only which is allowed uniformly to all dealers/sub-dealers. 52. In respect of retail sales, the differential duty is worked out after allowing the actual dicount, if any, given on such retail sales. (The detailed work sheet for the duty confirmed under this order is enclosed as annexure to this order). 53. Inasmuch as the assessees have switched over to the practice of allowing a uniform discount of 10% in respect of clearances made to distributors, branches, dealers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce value duty has been demanded. 4. Collector has recorded a finding of fact that even when sales are made to sub-dealers, etc. at a lower discount, balance discount has been passed on to the concerned distributor. Realisation for sale is the same. (see para 34 of the impugned order at page 182 of the paper book). 5. This may be illustrated. Suppose for sale directly made to the distributor from the factory, discount of 20% is given. In certain other cases suppose for sale made to sub-dealer a discount of 8% is given. Balance discount of 12% is given to the distributor. 6. In the above circumstances it has been held consistently in the following cases by CEGAT that the total discount given to the distributor would be permissible deduction. (a) 1989 (43) E.L.T. 70 (Tri.), affirmed in 1991 (54) E.L.T. A92 - Electrical Products Corpn. v. CCE (b) 1992 (42) ECR 252 (Tri.) - Sandoz India Ltd. v. CCE (c) 1997 (90) E.L.T. 210 (Tri.) - CCE v. Talbors Automotive Components (d) 2000 (122) E.L.T. 579 (Tri.) - Gabriel India Ltd. v. CCE. (e) 1996 (85) E.L.T. 139 (Tri.) - CCE v. Stallion Shox Ltd. 7. There are sales at the factory gate to the distributor in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any reservation. Passing on discount is not itself contingent upon distributor achieving broad target of sales, producing proof of service to the customer, etc. Even the credit notes given to the distributor at pages 204 to 237 of the paper book do not say that it is for area sales, commission, etc. Statement of Mr. Frank is contrary to the records and therefore cannot be relied upon. 13. Collector has relied upon the statement of Mr. Saravanan dated 8-9-1990. This is explained in grounds Q.1 to Q.4 by the appellant in the memo of appeal at pages 35-36. 14. Collector had relied upon the statement of Mr. M.V. Mallaya of Maroor Machine Tools. The same is irrelevant for the reasons given in grounds R.1 to R.8. 15. Collector has relied upon the statement of Smt. Santa Sethuraman of M/s. Maniam Co. The same is not relevant in view of paras S.1 to S.12 of the grounds of appeal. 16. It is clear from the above that Collector has passed a superficial order without going into the depth of the matter and without considering the appellant s explanation. 17. Collector has also relied upon the alleged manipulation in the gate pass vide para 38 of the order at page 183. Collector is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part I stating that price which they got approved from the department in part I under Section 4(1)(a) is after a round of litigation before the Assistant Collector and the Collector, Central Excise (Appeals). They also declared the price and got it approved from the department that they would be passing on the full discount at the time of clearance of the goods. He has submitted that they have mentioned in the price list that they would be passing on full discount at the time of clearance of the goods. He has submitted that they have mentioned in the price list that full discount shall be allowed at the time of clearance of the goods. He submitted that they need not pass on full discount to the sub-dealers and can pass on balance amount of discount either to the Distributor of the area or can keep with them the balance discount. In this connection he referred to the judgment rendered in the case of Sandoz India Ltd. v. CCE, Bombay reported in 1992 (60) E.L.T. 624 (T) = 1992 (42) ECR 252 (T) wherein the Tribunal has held that deduction of discount as declared in the price list should be treated as allowed if full discount shown in the declared price list had been passed on to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no area sales commission given by them as held by the adjudicating authority. The expenses towards warranty is borne by the manufacturer and not by the Distributor. Therefore, the statement of T. Frank that they are giving higher discount to the distributor because of various reasons is not correct. He also took us to question Nos. 8, 9, 10, and 11 and submitted that the statement of T. Frank is irrelevant for branch sales. He also informed that after a round of litigation before the Assistant Collector and the Collector (Appeals), the price list filed in part I was got approved from the department. He also submitted that they moved the High Court of Madras in a writ petition filed by them in regard to payment of refund to them and the Hon ble High Court while disposing of the writ petition made an observation that the wholesale price at the factory gate is available and that will be the assessable value for clearances. We find that this is only an observation made by the Hon ble High Court while disposing of their writ petition praying for refund and that would not support the case of the appellants in the present appeal before us since this appeal is regarding disallowing of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in para 4 of the statement of T. Frank, Director of the Company had admitted in his voluntary statement that the sales commission given to the distributor was by way of credit note. He also relied upon para 35 of the impugned order wherein the Commissioner has held that the investigation conducted by the department clearly brings out the fact that the Trade discount passed on to the main dealers/distributors is not the trade discount in the normal course of trade and consists of area sales commission provided for looking after the after sales service during warranty period, maintenance and other expenses. The Supreme Court in the case of M/s. Kirloskar Brothers reported in 1992 (59) E.L.T. 3 has held that higher discount given to the area dealers for providing after sales service is not deductible. Sri Frank, Director of the company in his statement dated 13-7-1990 has clearly admitted that the differential discount is passed on to the branches/ dealers/distributors to cover the inventory and after sales service during the guarantee period and therefore this amount is clearly covered by the Supreme Court decision as an inadmissible deduction. He also submitted that since full tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Central Govt. was that the discount to the area distributor was also in consideration for providing after sale service which is not required to be taken into account while dealing with trade discount within the meaning of explanation to Section 4(1)(a) of the CE Act, 1944. The Hon ble Apex Court, therefore, held that the Central Govt. rightly did not take into account such area distributors who may have to provide after sale service and the trade discount given to such wholesale dealers who were under no obligation to provide after sale service, is the relevant trade discount given to the wholesale dealers. 6. At this point the learned Counsel for the appellants intervened that the judgment in the case of Kirloskar Brothers (supra) is not relevant to the facts of this case. However, he did not elaborate as to how this case law was not relevant as per his version. 7. We have carefully considered the rival submissions. We find that Section 4(1)(a) of the CE Act, 1944 lays down that normal price will be the price at which the goods are ordinarily sold by the assessee to a buyer in the course of normal wholesale trade for delivery at the time and place of removal wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Apex Court in the case of Assistant Collector Central Excise and Others v. MRF reported in 1987 (27) E.L.T. 553 (SC). Trade discount can be allowed if the rate of discount is declared in advance and if it is uniformly available to all the wholesale dealers, otherwise not, as held by the Hon ble Supreme Court in the case of Bombay Tyre International. M/s. Elgi would have continued to evade payment of duty but for the alertness on the part of the assessing officials. During the course of assessment of RT 12 returns they noticed some corrections which were made in the duplicate copies (meant for Central Excise) so that the price tallied with the price shown in the price list. The officials recovered the original (purchaser-cum-transporter copy) copy of the gate pass bearing serial No. 434/16-6-1990 and 478/25-6-1990. Verification of these copies proved that the duplicate (meant for Central Excise) and triplicate (office copy) have been corrected by M/s. Elgi after issue of the original gate passes. Shri T. Frank, Director in his statement deposed that when the sale at the factory gate was in retail, duty was paid at the wholesale price and retail price of the product would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service station at Trichy in his statement on 8-9-1990 admitted that M/s. Elgi had charged him a higher price than shown in the gate pass and did not pass on the discount even when he requested. He also admitted that M/s. Elgi had asked him to correct the original gate pass but he had not done. From these sample statements, it is evident that trade discount was not given uniformly though shown in the gate passes and in few cases, in spite of requests made by dealers, trade discount was not allowed to them. It is pertinent to mention that commercial invoice was never submitted to the assessing officer along with RT 12 return and only duplicate copies of gate passes were submitted. Had commercial invoice been submitted along with gate passes then the assessing officer would have scrutinised them at the time of finalization of the assessment. Therefore the contention of the learned Counsel that they were disclosing everything to the department is not factually correct. On the contrary they got approval from the department for allowing uniform discount to all the buyers, but the discount was either not at all given or given at a lower rate than what was shown in the gate passes. T. Fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on 8-12-1994 which is after a period of 3 years and 7 months. Therefore, the statements made by Shri T. Frank has evidentiary value and his retraction has been rightly rejected. As rightly held by the adjudicating authority, Shri T. Frank was a responsible officer holding the position of Director of the Company responsible for the entire operations of the Company. It is unbelievable that such an officer would have given a false account of what was happening in the Company. Further the statements of all other persons including Shri T. Frank is corroborated by documentary evidence such as credit notes, and the statements given by other dealers and Branch Managers of Madurai and Cochin. It is well settled that when an inculpatory and confessional statement is belatedly retracted, the Court or the quasi-judicial authority would be entitled to go into the reasons for subsequent retraction. Therefore, the retraction has been rightly rejected as an after thought, as held by the adjudicating authority and we are in agreement with this finding as it reflects conscious application of mind. 8. Therefore, these facts which were ascertained on investigation by the department had revealed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Hon ble Supreme Court in the case of M/s. Kirloskar Brothers reported in 1992 (59) E.L.T. 3 (SC) that higher discount given to the area dealers for providing after sale service is not deductible. Therefore, the discount as claimed by them is inadmissible. Although they had declared to the Department at the time of filing statutory price list in part I under Section 4(1)(a) that they would be passing on full trade discount to the wholesale dealers who were independent and had no interest in the business of each other yet they have never passed on full discount uniformly to the above wholesale dealers. In para 35 of the impugned order the Collector has clearly held that investigation conducted by the department clearly brings out the fact that the trade discount passed on to the main dealers/distributors is not trade discount in the normal course of trade and consists of area sales commission provided for looking after, the after sale service during warranty period, maintenance and other expenses. 9. M/s. Elgi is a large Unit having factories at four places and under the SRP, lot of faith has been reposed in the trade. Therefore, they are required to disclose truthfully the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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